Winston Reed spent more than two years drawing up proposals for the Tiverton Energy Centre, an anaerobic digestion plant at Gibbet Moor Farm, which could have provided 4.5 megawatts of biogas every year.
But Devon County Council said its scale would have an adverse visual impact on an area of open countryside and could set a precedent for future industrial development.
The county's development management committee also said the proposed location was not included in the county Waste Local Plan and that there was no overriding need for a development of this scale.
Objector Richard Delf raised concerns about the welfare of grazing sheep and cattle if the centre were given the go-ahead, fears described by Mr Reed as "bizarre".
Mr Delf, who lives in Knowstone, said: "I have drawn attention to the risk posed by using waste products from food processing plants and abattoir waste in the biodigester and, in particular, the possibility of disease escaping from the site and spreading to surrounding livestock farms.
"Many farmers have awful and harrowing memories of the BSE crisis and the more recent foot and mouth outbreak."
Mr Reed's plan, which received 181 letters of support and 42 objections, would have involved 11 biodigestion silos, each standing at around 15m over ground level, on a 6.4-hectare site on the Tiverton to Rackenford Road, south of the A361.
Anaerobic digestion is widely used as a renewable energy source throughout Europe. It produces a methane and carbon dioxide rich biogas which helps replace fossil fuels.
Mr Reed hoped to process 150,000 tons of waste every year, including cattle slurry, poultry manure, food waste and silage.
He has yet to decide whether to appeal, but was astounded by the claims that the digester would endanger livestock.
He said: "That was bizarre. There are 3,000 of these things in Germany and they haven't killed any wild animals.
"The Anaerobic Digestion and Biogas Association (ADBA) thought it was the best-thought-out anaerobic digestion plant it had seen so for it to get refused is gut wrenching."
Cllr John Berry, who favoured the application, said members should accept that some schemes for sustainable energy might have to be built in open countryside.
He said: "There have been no objections from National Heritage or the Highways Agency and Devon County Council has already had discussions with Mr Reed and he is quite happy to meet the officer's needs for landscaping at the site."
Mr Reed said the refusal was a major blow for Tiverton. He said: "If Government targets for renewable energy are to be met, local planning policy must be changed."